Hedge Funds Score a Victory in Short-Selling Rules
October 2, 2008, 6:25 pm Link to This
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Topics Hedge FundsIndustries Financial Services
From Ben White, a DealBook colleague:
Turns out hedge funds will not have to publicly disclose their secret strategies after all, at least not any time soon.
The reprieve for the industry came late Wednesday. The Securities and Exchange Commission quietly said it would relent on an emergency order, first issued Sept. 19, that would have required hedge funds to publicly disclose vast amounts of detail on their short positions, which are the bets they make against individual stocks.
Hedge fund managers and their lobbyists in Washington immediately attacked the order, saying it amounted to making the Coca-Cola Company disclose its top-secret formula.
Many hedge funds would simply cease to operate, the argument went. Others would go to great lengths to avoid the rule, including by setting up offshore affiliates and conducting trades through complex swap agreements.
Opponents of the order also said it would have enormous unintended consequences including encouraging copy-cat traders to pile into a smart hedge fund’s short positions, putting further downward pressure on share prices.
The S.E.C. on Wednesday said it would still require hedge funds to provide disclosure on short positions to the commission but removed earlier language saying it would quickly make the data public.
S.E.C. officials on Thursday refused to comment on the change. One person familiar with the matter said the commission could still require disclosure of short positions in a final rule but there would probably be enough of lag, perhaps 45 days, to ensure that the data would not compromise a hedge fund’s intellectual property.
Industry lobbyists praised the S.E.C.’s decision to hold off on the disclosure rule.
“This would have been like making Colonel Sanders give Popeye’s his chicken recipe,” said Richard Baker, the former Louisiana congressman who now heads the Managed Funds Association, which lobbies for hedge funds.
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